India GDP growth slows to seven-quarter low of 5.4% in Jul-Sep

India’s gross domestic product (GDP) growth in the July-to-September quarter slowed to 5.4%, the slowest in seven quarters, down from 8.1% in the year-ago quarter and 6.7% in the April-to-June quarter, government data released on Friday showed.

Analysts and economists had foreseen the slowdown on weak consumption, subdued government expenditure, and adverse weather impacts on key industries.

Real gross value added (GVA), a core measure of economic activity, expanded by 5.6% in the second quarter of the current fiscal, slowing from 7.7% in the corresponding period last year. Nominal GVA growth eased to 8.1% when compared with 9.3% in the year-ago quarter.

Agriculture and allied sector grew at 3.5% after sub-optimal growth between 0.4% and 2.0% in the previous four quarters.

In the construction sector, sustained domestic consumption of finished steel led to growth rates of 7.7% and 9.1%, respectively, the second quarter and the first half year of the current fiscal.

Private final consumption expenditure grew at 6% against 2.6% in the year ago quarter, while government final consumption expenditure rebounded to 4.4% after either negative or low growth rates in previous three quarters.

The real GDP growth, which covers the value of goods and services adjusted for inflation, is estimated at ₹44.10 trillion in Q2 of the current fiscal year, down from ₹41.86 trillion in the comparable quarter last year.

The nominal GDP, which takes into account finished goods and services at current prices (not adjusted for inflation), is estimated at ₹76.60 trillion, up from ₹70.90 trillion last year, indicating a growth of 8%.

Similarly, real gross value added, which reflects value addition by industries minus intermediate costs, is estimated at ₹40.58 trillion, compared to ₹38.42 trillion in Q2 of 2023-24, showing a growth rate of 5.6%.

Rajani Sinha, chief economist at Care Edge, said, “The quantum of deceleration in GDP is much sharper than expected.”

“Lower growth is mainly because of poor industrial sector performance, specifically mining, manufacturing and electricity segment,” Sinha said, adding that a sharp moderation in investments was also noticed.

Sinha said she expects GDP growth to pick up in the second half of the year as the government pushes up its capex spending.

Agri production is estimated to be healthy and that should help further bolster rural consumption. Food inflation is also expected to moderate by the fourth quarter and that would be supportive of pick up in consumption, she added.

Beyond that, urban consumption would be dependent on improvement in the employment scenario and real wage growth. Sustained momentum in consumption growth would be critical for private investment to pick up.

Nish Bhatt, Founder and CEO, Millwood Kane International investment consulting firm with real estate at its core said, “The Q2 GDP growth at 5.4% is a big negative, after a good monsoon year, this was least expected. The agricultural growth was steady at 3.5% vs 1.7% YoY.”

Bhatt added that the fall in the growth rate could be attributed to lower private and government spending, which is unseasonal. Bhatt said, “The RBI has projected a full-year FY25 GDP growth at 7%, the latest GDP print may lead to RBI lowering its projection.”

The government needs to increase its spending, this may also open up the debate on the RBI advancing its rate easing cycle to as early as December. The current quarter’s spending and high-frequency indicators seem to provide some respite, a sustained and durable economic data is required, he added.